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Hudson Acquires Asset, Ups Guidance - Analyst Blog

Consistent with its strategy of adding high-class properties,
Hudson Pacific Properties, Inc. (HPP)
recently penned a joint venture deal with M. David Paul &
Associates/Worthe Real Estate Group (MDP/Worthe) to acquire a
Class-A property - The Pinnacle, located in Burbank in southern
California. Burbank, known as the Media Capital of the world, is
situated a few miles northeast of Hollywood.

The acquisition of a major property in Burbank portrays company
strategy to own and operate best-in-class office properties with
strong media and entertainment tenancy. As a matter of fact, the
company mostly targets high barrier-to-entry, in-fill locations
with favorable, long-term supply-demand characteristics in
markets such as Los Angeles, Orange County, San Diego and San
Francisco.

As per the agreement, MDP/Worthe property ownership will be
contributed to the newly created joint venture. Since its
inception in 1967, MDP/Worthe has engaged in development and
acquisition activities in the Los Angeles area. The company has
previously partnered with many well-known companies in this
respect. Currently, the company's portfolio consists of 21
properties spanning over 5 million square feet leased to
world-class entertainment firms, including
Walt Disney Co. (DIS)
,
Viacom, Inc. (VIA)
and
Lions Gate Entertainment Corp. (LGF)
.

The joint venture has closed the acquisition of the 393,776
square feet Pinnacle I building for $212.5 million, of which $129
million was financed through a 10-year project loan. Hudson
Pacific paid $83.9 million in swap for roughly 98% of the joint
venture. Of this, around $45.9 million was paid in cash and the
rest was drawn from its unsecured credit facility.

MDP/Worthe has agreed to contribute its ownership in Pinnacle II
to the joint venture for $130 million (including the assumption
of an existing loan worth $89.6 million) by first-quarter 2013.
Except for funding closing costs, Hudson Pacific will not have to
make further capital contribution in connection with the Pinnacle
II acquisition.

On completion of the transaction, the joint venture will have
possession of both the buildings for a combined price of $342.5
million. Hudson Pacific anticipates owning about 65% of the joint
venture and is expected to look after day-to-day property
management responsibilities.

Positioned in the midst of Burbank Media District, The Pinnacle
comprises two buildings - Pinnacle I and Pinnacle II - and spans
625,640 square feet. The building is strategically located in
proximity to Warner Bros. Studios, Burbank Studios and Walt
Disney Studios.

The property is currently 95% leased and boasts a cluster of
media and entertainment companies such as -
Sony Corporation (SNE)
, Warner Bros. Entertainment, Inc. of
Time Warner Inc. (TWX)
and Clear Channel Communications of
Clear Channel Outdoor Holdings Inc. (CCO)
. The Pinnacle building has high tenant retention ratio, with
some tenants retained since its inception.

Taking into account the acquisition of the ownership interest in
the joint venture holding Pinnacle I, Hudson Pacific increased
its full year 2012 adjusted FFO per share guidance to a range of
86 cents to 89 cents from the previous view of 83 cents to 87
cents. As a point of reference, the company recently reported the
third quarter adjusted FFO per share of 21 cents, beating the
Zacks Consensus Estimate by a penny.

We remain impressed with the company's major acquisition and
expect the new joint venture to serve as a long-term platform for
further Class-A office property acquisitions within the
MDP/Worthe portfolio.

Hudson Pacific is focused on ownership, operation and acquisition
of high-quality office properties and state-of-the-art media and
entertainment properties primarily in North and South California.
As of now, Hudson Pacific's portfolio consists of property of
approximately 5.5 million square feet of space.

We have a long-term Neutral recommendation on Hudson Pacific.
Also, it carries a short-term Zacks #3 Rank (Hold).

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